Comcast wants cash to deliver cached Netflix traffic to its subscribers. Has …

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Wharton Business School professor Kevin Werbach dubs Comcast's actions this week a "turning point in US Internet policy." Law professor Susan Crawford calls Comcast a terrifying, hat-wearing hydra—and she's looking for a Hercules to cut it down to size. Harold Feld of Public Knowledge says that Comcast has set up a new "toll booth" on the 'Net and is now operating like Ed "use my pipes free" Whitacre. And broadband analyst Dave Burstein says Comcast has just deployed "the nuclear option."

Just what is going on here, why does it matter, and why is Comcast calling backbone operator Level 3 a big fat liar for starting the whole debate?

The facts as we know them

Comcast found itself in the middle of a renewed argument over its "evilness" yesterday afternoon as an interconnection dispute blew up into public view. Level 3 Communications, which runs a major Internet backbone along with a newer content delivery network (CDN), fired off a scathing press release accusing Comcast of (once again) threatening the "open Internet."

On November 11, Level 3 inked a deal with Netflix to serve as the streaming media company's new CDN starting January 1, 2011. In that capacity, Level 3 will cache and serve Netflix streaming video from sites across the country to avoid possible backbone congestion and to deploy streams from servers that are closer to end users.

Due to the size of the deal, Level 3 announced that it was doubling its own storage capacity and adding 2.9 terabits per second (Tbps) of CDN capacity, alongside the 1.65Tbps that it rolled out late this year. The entire Netflix streaming library, which consists of more than 20,000 titles, will be moved directly to Level 3 servers during November and December in preparation for the January rollout.

Coming to you via the Level 3 CDN

The deal also means, of course, that a huge new amount of traffic will soon be sent from Level 3 to various ISPs, and not all of them are happy at the prospect. A week after Level 3 announced the Netflix deal, Comcast told the company that it would “demand a recurring fee from Level 3 to transmit Internet online movies and other content to Comcast customers who request such content,” in the words of yesterday's Level 3 press release.

Comcast says that this is standard practice (and that it's not singling out any particular kind of content). While it previously had a settlement-free (read: no charge) traffic peering agreement with Level 3, such agreements are typically made only between network operators who are roughly comparable in size and therefore exchange similar volumes of traffic with one another. According to Comcast, the Netflix deal means that Level 3 will soon more than double the amount of traffic it sends onto Comcast's network and that this will result in a 5:1 traffic ratio—at which point the relationship will be unbalanced, and fees will be required.

"We are happy to maintain a balance, no-cost traffic exchange with Level 3,” said Comcast senior vice president Joe Waz last night. “However, when one provider exploits this type of relationship by pushing the burden of massive traffic growth onto the other provider and its customers, we believe this is not fair.”

Level 3 thought it was entirely fair—in part because this is not traffic that is transiting through Comcast's network, but traffic that is headed for Comcast subscribers and was requested by them. Under this view, Comcast is trying to charge a content provider for the very access to content that it is selling to its own customers. And, of course, there's the issue that such fees could raise costs for Netflix and other Internet video providers, but won't affect Comcast's own video services such as cable TV.

"By taking this action,” said Level 3 Chief Legal Officer Thomas Stortz, "Comcast is effectively putting up a toll booth at the borders of its broadband Internet access network, enabling it to unilaterally decide how much to charge for content which competes with its own cable TV and Xfinity delivered content. This action by Comcast threatens the open Internet and is a clear abuse of the dominant control Comcast exerts in broadband access markets as the nation's largest cable provider.”

And if that wasn't enough of an attack, Level 3 said that it was “approaching regulators and policymakers and asking them to take quick action to ensure that a fair, open and innovative Internet does not become a closed network controlled by few institutions with dominant market power.”

While such sentiments tap into a fertile seedbed of hate that many people have for cable companies in general (routinely one of the most reviled industries in the US by consumers) and for Comcast in particular (thanks to its BitTorrent blocking/throttling and subsequent litigation), Level 3 is hardly a disinterested paladin working for Great Justice; the company wants to maintain its free peering arrangements with Comcast even as it grows into a large CDN operator.

This appears to be Comcast's view of the situation—it's a private peering dispute taken public in a bid for leverage. And Level 3, seeing no choice if it hoped to avoid a service interruption, has already agreed "under protest" to the new fees.